QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36218

TIME INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

13-3486363

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer Identification No.)

1271 Avenue of the Americas, New York, NY

10020

(Address of Principal Executive Offices)

(Zip Code)

(212) 522-1212

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer x

Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

(1) The nine months ended September 30, 2014 includes a $50 million payment for settlement of a lease obligation.

See accompanying notes.

4

TIME INC.

CONSOLIDATED AND COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

Nine Months Ended September 30,

(Unaudited; millions)

2014

Common Stock

Additional Paid-in Capital

Time Warner Investment

Accumulated Deficit

Accumulated Other Comprehensive Loss

Total Shareholders' Equity

BALANCE, BEGINNING OF PERIOD

$

—

$

—

$

4,158

$

—

$

(116

)

$

4,042

Net income (loss)

—

—

(69

)

11

—

(58

)

Other comprehensive income (loss)

—

—

—

—

10

10

Equity-based compensation and other

—

23

2

—

—

25

Net transactions with Time Warner

—

—

(1,226

)

—

—

(1,226

)

Conversion of Time Warner Investment

1

12,646

(2,865

)

(9,782

)

—

—

BALANCE, END OF PERIOD

$

1

$

12,669

$

—

$

(9,771

)

$

(106

)

$

2,793

2013

Common Stock

Additional Paid-in Capital

Time Warner Investment

Accumulated Deficit

Accumulated Other Comprehensive Loss

Total Shareholders' Equity

BALANCE, BEGINNING OF PERIOD

$

—

$

—

$

4,429

$

—

$

(145

)

$

4,284

Net income (loss)

—

—

135

—

—

135

Other comprehensive income (loss)

—

—

—

—

(29

)

(29

)

Net transactions with Time Warner

—

—

(232

)

—

—

(232

)

BALANCE, END OF PERIOD

$

—

$

—

$

4,332

$

—

$

(174

)

$

4,158

See accompanying notes.

5

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Time Inc. together with its subsidiaries (collectively, the "Company", "we", "us" or "our") is one of the world's leading media companies reaching more than 130 million consumers each month across multiple platforms. Our influential brands include People, Sports Illustrated, InStyle, Time, Real Simple, Southern Living, Entertainment Weekly, Travel + Leisure, Food & Wine and Fortune, as well as more than 50 diverse titles at Time Inc. UK such as Decanter and Horse & Hound. Time Inc. is home to celebrated events and franchises including the Fortune 500, Time 100, People’s Sexiest Man Alive, Sports Illustrated’s Sportsman of the Year, the Food & Wine Classic in Aspen and the Essence Festival. As of September 30, 2014, we operated approximately 40 websites that collectively have over 100 million average monthly unique visitors around the world.1 We also operate integrated publishing businesses that provide content marketing, targeted local print and digital advertising programs, branded book publishing and marketing and support services, including magazine subscription sales services, retail distribution and marketing services and customer service and fulfillment services, to us and third-party clients, including other magazine publishers.

The Spin-Off

On June 6, 2014 (the "Distribution Date"), we completed the complete legal and structural separation of our business (the "Spin-Off") from Time Warner Inc. ("Time Warner"). The Spin-Off was completed by way of a pro rata dividend on the Distribution Date of Time Inc. shares held by Time Warner to its stockholders as of May 23, 2014 (the "Record Date") based on a distribution ratio of one share of Time Inc. common stock for every eight shares of Time Warner common stock held. Following the Spin-Off, Time Warner stockholders became the owners of 100% of the outstanding shares of common stock of Time Inc. and Time Inc. began operating as an independent, publicly-traded company with its common stock trading on The New York Stock Exchange ("NYSE") under the symbol "TIME". In connection with the Spin-Off, we and Time Warner entered into the Separation and Distribution Agreement dated June 4, 2014 (the "Separation and Distribution Agreement") and certain other related agreements which govern our relationship with Time Warner following the Spin-Off. (See Note 13 – Relationship Between Time Inc. and Time Warner After the Spin-Off).

Basis of Presentation

The accompanying unaudited consolidated and combined interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. Accordingly, these unaudited consolidated and combined interim financial statements do not include all of the information and notes required for complete annual financial statements. The accompanying unaudited consolidated and combined interim financial statements should be read in conjunction with our audited combined financial statements and notes thereto for the year ended December 31, 2013 contained in Amendment No. 4 to our Registration Statement on Form 10 filed with the SEC on May 8, 2014. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the current year ending December 31, 2014. The financial information prior to the Spin-Off may not necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position, results of operations and cash flows would have been had we been an independent, publicly-traded company.

The consolidated and combined interim financial statements presented in this Form 10-Q are unaudited; however, in the opinion of management, such unaudited consolidated and combined interim financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with GAAP applicable to interim periods. All intercompany transactions have been eliminated.

__________________________

(1)

As reported by comScore as of September 30, 2014.

6

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Prior to the Spin-Off, our combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of Time Warner. Our financial statements as of December 31, 2013 and for the three and nine months ended September 30, 2013 are on a combined basis and presented as carve-out financial statements as we were not a separate consolidated entity prior to the Distribution Date. These statements reflect the combined historical results of operations, financial position and cash flows of Time Warner’s publishing segment, which consisted principally of its magazine publishing business and related websites and operations managed by Time Inc. (the "TW Publishing Segment"). Subsequent to the Distribution Date, the financial statements as of September 30, 2014 and for the three and nine months ended September 30, 2014 are presented on a consolidated basis as we became a separate consolidated entity.

In connection with the Spin-Off, we entered into agreements with Time Warner that either did not exist historically or that have different terms than the terms of arrangements or agreements that existed prior to the Spin-Off. In addition, our historical financial information does not reflect changes that we are experiencing as a result of the separation from Time Warner, including changes in the financing, operations, cost structure and personnel needs of our business. Further, the historical financial statements include allocations of certain Time Warner corporate expenses. We believe the assumptions and methodologies underlying the allocation of these expenses are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by us if we had operated as an independent, publicly-traded company or of our costs expected to be incurred in the future. These allocated expenses relate to various services that have historically been provided to us by Time Warner, including cash management and other treasury services, administrative services (such as tax, human resources and employee benefit administration) and certain global marketing and IT services. During the three months ended September 30, 2014 and 2013, we incurred nil and $3 million, respectively, of expenses related to charges for services performed by Time Warner. During the nine months ended September 30, 2014 and 2013, we incurred $6 million and $13 million, respectively, of expenses related to charges for services performed by Time Warner.

The unaudited consolidated and combined interim financial statements will be referred to as the "Financial Statements" herein. The unaudited consolidated and combined statements of operations will be referred to as the "Statements of Operations" herein. The unaudited consolidated and combined balance sheets will be referred to as the "Balance Sheets" herein.

Our Balance Sheet as of September 30, 2014 consists of our consolidated balances subsequent to the Spin-Off. The balances reflect the assets and liabilities that were historically included in the TW Publishing Segment. All assets and liabilities included in our Balance Sheet as of September 30, 2014 are recorded on a historical cost basis. Our Balance Sheet as of December 31, 2013 consists of the combined balances of the TW Publishing Segment.

For purposes of our Financial Statements for periods prior to the Spin-Off, income tax expense has been recorded as if we filed tax returns on a stand-alone basis separate from Time Warner. This separate return methodology applies the accounting guidance for income taxes to the stand-alone financial statements as if we were a stand-alone enterprise for the periods prior to the Distribution Date. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of our actual tax balances prior to or subsequent to the Spin-Off. Prior to the Spin-Off, our operating results were included in Time Warner’s consolidated U.S. federal and state income tax returns. Pursuant to rules promulgated by the Internal Revenue Service and various state taxing authorities, we expect to file our initial U.S. income tax return for the period from June 7, 2014 through December 31, 2014 in 2015. The income tax accounts reflected in the Balance Sheet as of September 30, 2014 include income taxes payable and deferred taxes allocated to us at the time of the Spin-Off and taxes associated with our post-Spin-Off operations. The calculation of our income taxes involves considerable judgment and the use of both estimates and allocations.

The financial position and operating results of most of our foreign operations are combined or consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Translation gains or losses on assets and liabilities are included as a component of Accumulated other comprehensive income (loss), net.

7

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Use of Estimates

The preparation of our Financial Statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Significant estimates and judgments inherent in the preparation of the Financial Statements include accounting for asset impairments, allowances for doubtful accounts, depreciation and amortization, magazine and product returns, pension and other post-retirement benefits, equity-based compensation, income taxes, contingencies, and litigation matters.

Accounting Guidance Adopted in 2014

Presentation of Unrecognized Tax Benefits

On January 1, 2014, we adopted, on a prospective basis, guidance that requires a liability related to an unrecognized tax benefit to be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations in which a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of a jurisdiction or the tax law of a jurisdiction does not require it, and we do not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The adoption of this guidance has had no impact on our Financial Statements.

Accounting Guidance Not Yet Adopted

In August 2014, guidance was issued that establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and setting rules for how this information should be disclosed in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, with early adoption permitted. We do not expect our adoption of this guidance to have an impact on our consolidated financial condition and results of operations.

In June 2014, guidance was issued impacting the accounting for share-based performance awards. This guidance requires that a performance target that affects vesting that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. This guidance is effective for annual and interim periods within the annual period beginning after December 15, 2015. We do not currently have share-based payment awards that fall within the scope of this guidance and therefore do not anticipate an impact on our Financial Statements upon adoption.

In May 2014, guidance was issued that establishes a new revenue recognition framework in GAAP for all companies and industries. The core principle of the guidance is that an entity should recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive for those goods or services. The guidance includes a five-step framework to determine the timing and amount of revenue to recognize related to contracts with customers. In addition, this guidance requires new or expanded disclosures related to the judgments made by companies when following this framework. The guidance will become effective on either a full or modified retrospective basis for the Company on January 1, 2017. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our Financial Statements and related disclosures.

In April 2014, guidance was issued that raises the threshold for disposals to qualify as discontinued operations. Under this new guidance, a discontinued operation is (1) a component of an entity or group of components that has been disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity's operations and financial results or (2) an acquired business that is classified as held for sale on the acquisition date. This guidance also requires expanded or new disclosures for discontinued operations, individually material disposals that do not meet the definition of a discontinued operation, an entity's continuing involvement with a discontinued operation following disposal, and retained equity method investments in a discontinued operation. This

8

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

guidance will become effective on a prospective basis for us on January 1, 2015 and is not expected to have a material impact on our Financial Statements.

2. DISPOSITIONS

In August 2014, the sale of our Mexico-based operations, Grupo Editorial Expansión ("GEX"), was consummated for approximately $41 million, of which $2 million was received in the form of a promissory note payable to us in the fourth quarter of 2014. During the second quarter of 2014, we recorded an allocated Goodwill impairment charge of $26 million in connection with the impending sale. During the third quarter of 2014, we recorded a gain on sale of our GEX operations of $1 million. This gain is included within Selling, general, and administrative expenses on the accompanying Statements of Operations for the three and nine months ended September 30, 2014. Our GEX operations published 11 magazines in print in Mexico and operated 10 websites. GEX revenues for the three and nine months ended September 30, 2014 and 2013 represented 2% or less of our overall revenues during those periods. We have no significant continuing involvement in the operations of GEX following the consummation of the sale. The sale is not expected to have a significant impact on our continuing operations or financial results. However, we will continue our licensing arrangements with GEX which allow GEX to publish InStyle and Travel + Leisure magazines in Mexico. Revenues for these licensing arrangements are not significant to our overall results of operations.

3. FAIR VALUE MEASUREMENTS

A fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy distinguishes between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require us to use present value and other valuation techniques in the determination of fair value (Level 3).

In connection with the Tax Matters Agreement with Time Warner, we are required to indemnify Time Warner for international tax recharges in connection with our employees' exercises of stock compensation awards granted by Time Warner. The fair value of this obligation, as included within Other noncurrent liabilities on the accompanying Balance Sheet as of September 30, 2014, was estimated at $5 million. This fair value was derived using a Black-Scholes model and is considered a Level 3 measurement. Adjustments to fair value of this obligation are included as a component of Other expense, net in the Statements of Operations.

As of September 30, 2014 and December 31, 2013, other assets and liabilities required to be carried at fair value on a recurring basis were not significant.

The following table reconciles the beginning and ending balances of net liabilities classified as Level 3 (in millions):

Balance at January 1, 2014

$

—

Additions

16

Fair value adjustment

2

Payments

(13

)

Balance as of September 30, 2014

$

5

9

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Financial Instruments

Our financial instruments, including our term loan (the "Term Loan") and our 5.75% senior notes (the "Senior Notes"), are not required to be carried on our Balance Sheets at fair value. However, the following table summarizes the fair values of each of our significant debt instruments based on quoted market prices for similar issues or on the current rates offered to us for instruments of the same remaining maturities (in millions):

September 30, 2014

December 31, 2013

Carrying Amount

Estimated Fair Value

Carrying Amount

Estimated Fair Value

Debt instruments:

Term Loan

$

686

$

692

$

—

$

—

5.75% Senior Notes

690

676

—

—

This Old House Promissory Note

—

—

38

38

$

1,376

$

1,368

$

38

$

38

Our Term Loan and Senior Notes were issued at a discount of $13 million and $10 million, respectively. Such discounts are being amortized under the effective interest method over the respective terms of the debt instruments. Fair value estimates related to our debt instruments presented above and considered a Level 3 measurement are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and include uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The carrying value for the majority of our other financial instruments approximates fair value due to the short-term nature of the financial instrument or because the financial instrument is of a longer-term nature and is recorded on a discounted basis. For the remainder of our financial instruments, differences between carrying value and fair value were not significant as of September 30, 2014.

Non-Financial Instruments

The majority of our non-financial instruments, which include Goodwill, Intangible assets, Inventories and Property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for Goodwill) a non-financial instrument is required to be evaluated for impairment. If we were to determine that the non-financial instrument were impaired, we would be required to write down the non-financial instrument to its fair value.

During the first quarter of 2014, we classified one of our buildings as an Asset held for sale. As a result, we recorded a noncash impairment charge of $20 million to write down the value of the building to its fair value less costs to sell. The resulting fair value measurement was considered to be a Level 3 measurement and was determined using a market approach.

In August 2014, our Mexico-based GEX operations were sold for approximately $41 million. In connection with the sale, we recorded an allocated Goodwill impairment charge of $26 million as of June 30, 2014. The assumptions used to determine the fair value of the assets and liabilities of GEX and allocated Goodwill were consistent with those used in our overall goodwill impairment analysis and included projected future cash flows from our 2014 budget and long-range plan, a discount rate of 10.5%, a terminal growth rate of 1.0% and a market multiple of 7.5x a measure of earnings. The resulting fair value measurement was considered a Level 3 measurement and was determined using a market approach.

10

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

4. INVENTORIES

Inventories consist of (in millions):

September 30, 2014

December 31, 2013

Inventories:

Raw materials - paper

$

40

$

40

Work in process

5

1

Finished goods

14

15

Total inventories

$

59

$

56

Work in process inventory primarily relates to books in production that have not yet been completed. Finished goods inventory primarily relates to books and other merchandise.

5. GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

The following summary sets forth the change in Goodwill during the nine months ended September 30, 2014 (in millions):

Balance at January 1, 2014

$

3,162

Acquisitions (a)

10

Dispositions (b)

(29

)

Balance at September 30, 2014

$

3,143

__________________________

(a) Acquisitions during the nine months ended September 30, 2014 primarily relate to our purchase of Cozi Inc. during the second quarter of 2014.

(b) An allocated Goodwill impairment charge of $26 million was taken during the second quarter of 2014 in connection with the impending sale of our Mexico-based GEX operations. The sale was consummated in August 2014 and the remaining Goodwill of $3 million was disposed of.

Goodwill and indefinite-lived intangible assets are tested annually for impairment during the fourth quarter of each fiscal year or earlier upon the occurrence of certain events or substantive changes in circumstances. Although no indicators of impairment were identified during the current period that required us to perform an interim assessment or recoverability test, we continue to experience declines in our print advertising and circulation revenues as a result of market conditions in the magazine publishing industry. If market conditions worsen, if the market price of our publicly traded common stock declines, or if our performance fails to meet current expectations, it is possible that the carrying value of our reporting unit will exceed its fair value, which could result in the recognition of a noncash impairment of Goodwill that could be material.

11

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Intangible Assets

Intangible assets consisted of the following (in millions):

Weighted Average Useful Life

September 30, 2014

December 31, 2013

Intangible assets subject to amortization:

Tradenames (a) (b)

20

$

1,476

$

904

Customer lists and other intangible assets (c)

5

563

566

Total gross intangible assets subject to amortization

2,039

1,470

Accumulated amortization

(931

)

(888

)

Total net intangible assets subject to amortization

1,108

582

Intangible assets not subject to amortization (a)

Indefinite

—

586

Total net intangible assets

$

1,108

$

1,168

__________________________

(a)

Effective January 1, 2014, certain tradenames with a carrying value totaling approximately $586 million that were previously assigned indefinite lives have been assigned finite lives of 17 years. We recorded amortization expense of approximately $9 million and $26 million on these tradenames during the three and nine months ended September 30,2014, respectively. For the year ending December 31, 2014, we expect to record total amortization expense of approximately $34 million related to these intangible assets.

(b)

Tradenames decreased approximately $14 million in connection with the sale of our GEX operations.

(c)

Customer lists and other intangible assets decreased approximately $8 million in connection with the sale of our GEX operations. This decrease was partially offset by an increase of $5 million from other intangible assets acquired in connection with the Cozi Inc. acquisition.

Long-Lived Assets

Long-lived assets, including Property, plant and equipment and finite-lived intangible assets, do not require that an annual impairment test be performed. Instead, long-lived assets are tested for impairment upon the occurrence of a triggering event. During the nine months ended September 30, 2014, we recorded fixed asset impairments of approximately $26 million primarily related to a building that we classified as held for sale during the first quarter of 2014 as well as our exit from certain leased properties. The building held for sale is recorded at its fair value less costs to sell within Prepaid expenses and other current assets on the accompanying Balance Sheet as of September 30, 2014.

12

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

6. SHAREHOLDERS' EQUITY

Prior to the Distribution Date, Time Warner, as our sole shareholder, approved and adopted our Amended and Restated Certificate of Incorporation, and our Board of Directors approved and adopted our Amended and Restated By-laws. The following summarizes information concerning our capital stock.

Authorized Capital Stock

Since the Spin-Off, our authorized capital stock consists of 400 million shares of common stock, par value $0.01 per share, and 40 million shares of preferred stock, par value $0.01 per share.

Common Stock

Shares Outstanding: On the Distribution Date, Time Warner completed the distribution of one share of common stock of Time Inc. for every eight shares of Time Warner common stock. Following the distribution, we had approximately 108.94 million shares of common stock issued and outstanding.

Dividends: Holders of shares of our common stock will be entitled to receive dividends when, as and if declared by our Board of Directors at its discretion out of funds legally available for that purpose, subject to the preferential rights of any preferred stock that may be outstanding. The timing, declaration, amount and payment of future dividends are dependent on our financial condition, earnings, the capital requirements of our business, covenants associated with debt obligations and debt service obligations, as well as legal requirements, regulatory constraints, industry practice and other factors deemed relevant by our Board of Directors. Our Board of Directors will make all decisions regarding our payment of dividends from time to time in accordance with applicable law. On October 29, 2014, our Board of Directors declared a dividend of $0.19 per common share payable on December 15, 2014 to shareholders of record as of the close of business on November 28, 2014.

Voting Rights: The holders of our common stock are entitled to vote only in the circumstances set forth in our Amended and Restated Certificate of Incorporation. The holders of our common stock will be entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders.

Other Rights: Subject to the preferential liquidation rights of any preferred stock that may be outstanding, upon our liquidation, dissolution or winding-up, the holders of our common stock will be entitled to share ratably in those assets legally available for distribution to our shareholders.

The holders of our common stock do not have preemptive rights or preferential rights to subscribe for shares of our capital stock.

Preferred Stock

Without any further vote or action by the shareholders, our Board of Directors may designate and issue from time to time up to 40 million shares of preferred stock in one or more series. Our Board of Directors may determine and fix the number of shares constituting the series and the designation of the series, the voting powers (if any) of the shares of the series, and the preferences and relative, participating, optional and other rights, if any, and any qualifications, limitations or restrictions, applicable to the shares of such series.

Comprehensive Income (Loss)

Comprehensive income (loss) is reported in the Consolidated and Combined Statements of Comprehensive Income (Loss) and consists of Net income (loss) and other gains and losses affecting shareholders' equity that, under GAAP, are excluded from Net income (loss). Such items consist primarily of foreign currency translation gains (losses) and changes in certain pension benefit plan obligations.

13

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The following summary sets forth the activity within Other comprehensive income (loss) for the three and nine months ended September 30,2014 and 2013 (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2014

Pretax

Tax(Provision)Benefit

Net of Tax

Pretax

Tax(Provision)Benefit

Net of Tax

Foreign currency translation gains (losses)

$

(39

)

$

—

$

(39

)

$

6

$

—

$

6

Reclassification adjustment for (gains) losses on foreign currency realized in net income (a)

Foreign currency reclassification adjustments were the result of the sale of our Mexico-based GEX operations in August 2014.

(b)

Included in Selling, general and administrative expenses.

14

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

7. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share for our common stock is calculated by dividing Net income (loss) attributable to Time Inc. common shareholders by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of common shares issuable under equity-based compensation plans in accordance with the treasury stock method, except where the inclusion of such common shares would have an anti-dilutive impact.

The determination and reporting of earnings per share requires the inclusion of certain of our time-based restricted stock units ("RSUs") where such securities have the right to share in dividends, if declared, equally with common shareholders. During periods in which we generate net income, such participating securities have the effect of diluting both basic and diluted earnings per share. During periods of net loss, no effect is given to participating securities, since they do not share in the losses of the Company. For the three and nine months ended September 30, 2014, such participating securities had no impact on our basic and dilutive earnings per share calculation as our Board of Directors had not declared, and the Company had not paid, any cash dividends.

On the Distribution Date, approximately 108.94 million shares of our common stock were distributed to Time Warner stockholders as of the Record Date. This share amount is being utilized for the pro forma calculation of both basic and diluted earnings (loss) per common share for the three and nine months ended September 30,2013 as no equity-based awards were outstanding prior to June 6, 2014 and Time Inc. was a wholly-owned subsidiary of Time Warner prior to that date.

For the three and nine months ended September 30, 2014 and 2013, basic and diluted earnings (loss) per common share were as follows (in millions, except per share amounts):

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Net income (loss) attributable to Time Inc. common shareholders

$

48

$

68

$

(58

)

$

135

Weighted average number of common shares outstanding - basic

109.15

108.94

109.03

108.94

Dilutive effect of equity awards

0.59

—

—

—

Weighted average number of common shares outstanding - diluted

109.74

108.94

109.03

108.94

Net income (loss) per common share attributable to Time Inc. common shareholders:

Basic

$

0.44

$

0.62

$

(0.53

)

$

1.24

Diluted

$

0.44

$

0.62

$

(0.53

)

$

1.24

The computation of diluted income per common share for the three and nine months ended September 30, 2014 excludes certain equity awards because they are anti-dilutive. Such equity awards are as set forth below (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Anti-dilutive equity awards:

2

N/A

5

N/A

15

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

8. EQUITY-BASED COMPENSATION

Prior to the consummation of the Spin-Off, our employees were eligible to participate in Time Warner’s equity plans pursuant to which they were granted awards of Time Warner common stock. The equity-based payments recorded by us prior to the Spin-Off included the expense associated with our employees.

Following the Spin-Off, our employees no longer actively participate in the Time Warner equity plans. Active, non-retirement eligible employees who held Time Warner equity awards at the time of the Spin-Off were treated as if their employment with Time Warner were terminated without cause. For most of our employees, this treatment resulted in the forfeiture of unvested stock options and shortened exercise periods for vested stock options. The treatment also resulted in the pro rata vesting of the next installment of, and forfeiture of the remainder of, their RSUs. Following the Spin-Off in June 2014, we granted these employees Time Inc. RSUs under the Time Inc. 2014 Omnibus Incentive Compensation Plan (the "Omnibus Incentive Plan") with a value intended to equal the intrinsic value of their forfeited Time Warner options and RSUs and with substantially the same vesting schedule as the forfeited awards. Such Time Inc. RSUs granted to replace forfeited Time Warner awards provide awardees with a right to any dividends that may be declared on the underlying Time Inc. common stock. These awards approximated 1.8 million RSUs.

In accordance with the terms of our Chief Executive Officer's and our Executive Vice President and Chief Financial Officer's employment agreements and associated equity award agreements, Time Warner stock options and RSUs held by these two executives at the time of the Spin-Off were converted into Time Inc. equity awards with the same general terms and conditions as the original awards (the "Conversion Awards").

Additionally, in June 2014, our Board of Directors approved and granted approximately 1.7 million RSUs and approximately 1.1 million stock options under the Omnibus Incentive Plan. Unlike the Conversion Awards and the 1.8 million replacement awards described above, these awards do not provide awardees with a right to any dividends that may be declared on the underlying Time Inc. common stock.

There were no Time Warner RSUs or stock options granted to our employees during the three and nine months ended September 30,2014 and 2013.

The table below summarizes the weighted-average assumptions used to value stock options at their grant date and the weighted-average grant date fair value per option:

Nine Months Ended September 30,

2014

2013

Expected volatility

28.3

%

N/A

Expected term to exercise from grant date

5.28

N/A

Risk-free rate

1.9

%

N/A

Expected dividend yield

3.0

%

N/A

Weighted average grant date fair value per option

$

4.68

N/A

The following table sets forth the weighted average grant date fair value of RSUs:

Nine Months Ended September 30,

2014

2013

RSUs

$

22.08

N/A

16

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The following table sets forth the number of stock options and RSUs granted (in millions):

Total unrecognized compensation cost related to unvested RSUs as of September 30, 2014, without taking into account expected forfeitures, was $60 million and is expected to be recognized over a weighted-average period between two and three years.

Total unrecognized compensation cost related to unvested stock options as of September 30, 2014, without taking into account expected forfeitures, was $7 million and is expected to be recognized over a weighted-average period between three and four years.

9. PENSION BENEFITS

In May 2014, our Board of Directors adopted the Time Inc. Excess Benefit Pension Plan, which is a continuation of the Time Warner Excess Benefit Pension Plan. The Time Warner Excess Benefit Pension Plan provides for payments of additional pension benefits to eligible employees in excess of the federal limitation on the amount of compensation eligible for the calculation of benefits and the amount of benefits derived from employer contributions that may be paid to participants under the Time Warner Pension Plan. Pursuant to the Time Inc. Excess Benefit Pension Plan, we remain responsible, following the Spin-Off, for the accrued benefits of any employee who was actively employed by us on or after January 1, 2014 or who was receiving salary continuation or separation pay benefits from us on or after December 31, 2013, and Time Warner remains responsible for any obligation to our other former employees who participated in the Time Warner Excess Benefit Pension Plan. The Time Warner Excess Benefit Pension Plan has been frozen to new participants since 2010. The Time Inc. Excess Benefit Pension Plan has been terminated and the participants will be fully paid out under the provisions of the plan in 2015.

In addition to the Time Inc. Excess Benefit Pension Plan, we participate in various other funded and unfunded noncontributory defined benefit plans, including international plans in the U.K., Germany and Benelux. Pension benefits under these plans are based on formulas that reflect the employees' years of service and compensation during their employment period.

17

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The components of Net periodic benefit (income) loss for our defined benefit pension plans for the three and nine months ended September 30,2014 and 2013 are as follows (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Net periodic benefit (income) loss:

Interest cost

$

9

$

6

$

23

$

20

Expected return on plan assets

(12

)

(9

)

(34

)

(29

)

Amortization of net loss

—

—

2

2

Net periodic benefit (income) loss

$

(3

)

$

(3

)

$

(9

)

$

(7

)

10. RESTRUCTURING AND SEVERANCE COSTS

Our Restructuring and severance costs primarily relate to employee termination costs and other exit costs, including lease terminations. Restructuring and severance costs for the three and nine months ended September 30, 2014 and 2013 and are as follows (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Restructuring and severance costs(a)

$

(6

)

$

4

$

164

$

58

__________________________

(a)

The benefit in the three months ended September 30, 2014 relates to a change in estimate of severance costs and an adjustment to exit costs.

Selected information relating to Restructuring and severance costs is as follows (in millions):

Employee Terminations

Other

Exit

Costs

Total

Remaining liability as of December 31, 2013

$

28

$

30

$

58

Net accruals for 2014 restructurings

122

42

164

Noncash adjustments (a)

(5

)

7

2

Cash paid

(59

)

(71

)

(130

)

Remaining liability as of September 30, 2014

$

86

$

8

$

94

__________________________

(a)

Noncash adjustments to employee terminations relate to the settlement of certain employee-related liabilities with equity instruments whereas noncash adjustments to other exit costs relate to a bankruptcy claim distribution and adjustments for deferred rent liabilities.

As of September 30, 2014, of the remaining $94 million liability, $63 million was classified as a current liability in the Balance Sheets, with the remaining $31 million classified as a noncurrent liability. Amounts classified as noncurrent liabilities are expected to be paid through 2020 and primarily relate to severance costs.

As a result of the planned relocation of our corporate headquarters (See Note 12, Commitments and Contingencies – Lease Obligations), we have accelerated the depreciation on our current tenant improvements at our New York City headquarters at 1271 Avenue of the Americas. This accelerated depreciation charge impacted the three and nine months ended September 30, 2014 by $5 million and $10 million, respectively, and is expected to impact the full year 2014 and 2015 results of operations by $16 million and $21 million, respectively.

18

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

11. DEBT

Our debt obligations consist of the following (in millions):

September 30, 2014

December 31, 2013

5.75% Senior Notes

$

700

$

—

Senior Credit Facilities:

Term Loan

698

—

Revolving Credit Facility

—

—

This Old House Promissory Note

—

38

Unamortized discount

(22

)

—

Total debt obligations

1,376

38

Less: Current portion of long-term debt

(7

)

—

Noncurrent debt obligations

$

1,369

$

38

Future maturities of debt for the five consecutive twelve-month periods ending on September 30 of each of the years set forth below and for periods thereafter are as follows (in millions):

2015

$

7

2016

7

2017

7

2018

7

2019

7

Thereafter

1,363

Total future maturities

1,398

Unamortized discount

(22

)

Total debt obligations

$

1,376

Senior Notes and Senior Credit Facilities

On April 29, 2014, we issued $700 million aggregate principal amount of Senior Notes due April 15, 2022 in a private offering. The Senior Notes are guaranteed by substantially all of our wholly-owned domestic subsidiaries and, under certain circumstances, may become guaranteed by other existing or future subsidiaries. On or after April 15, 2017, we may redeem the Senior Notes, in whole at any time or in part from time to time, at a premium that will start at 4.313% and decrease over time to zero, plus accrued and unpaid interest. Prior to April 15, 2017, we may redeem the Senior Notes, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed plus a customary “make-whole” premium, plus accrued and unpaid interest. In addition, until April 15, 2017, we may, at any time and from time to time, redeem up to 40% of the aggregate principal amount of the Senior Notes at a redemption price equal to 105.75% of the principal amount of such Senior Notes plus accrued and unpaid interest with the proceeds of certain equity offerings. In the event of a change of control (as defined in the indenture that governs the Senior Notes), the holders of the Senior Notes may require us to purchase for cash all or a portion of their Senior Notes at a purchase price equal to 101% of the principal amount of such Senior Notes, plus accrued and unpaid interest.

On April 24, 2014, we entered into senior secured credit facilities (the "Senior Credit Facilities") providing for a Term Loan in an aggregate principal amount of $700 million with a seven-year maturity and a $500 million revolving credit facility with a five-year maturity, of which up to $100 million is available for the issuance of letters of credit (the "Revolving Credit Facility"). The Revolving Credit Facility will be used for working capital and other general corporate purposes. The Term Loan was funded on May 29, 2014.

19

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

All obligations under the Senior Credit Facilities are guaranteed by substantially all of our existing wholly-owned domestic subsidiaries and, subject to certain exceptions, will be guaranteed by our future wholly-owned domestic subsidiaries. All obligations under the Senior Credit Facilities, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of Time Inc.'s assets and the assets of the guarantors under the Senior Credit Facilities, including a first-priority pledge of all of the capital stock of our subsidiaries directly held by Time Inc. or the guarantors (which pledge, in the case of the capital stock of any such directly-held foreign subsidiary, is limited to 65% of its voting capital stock and 100% of its non-voting stock). All then-outstanding principal and interest under the Term Loan is due and payable on April 24, 2021. All then outstanding principal and interest under the Revolving Credit Facility is due and payable, and all commitments thereunder will terminate, on June 6, 2019.

The credit agreement that governs the Senior Credit Facilities permits us to incur incremental senior secured term loan borrowings under the Senior Credit Facilities, subject to the satisfaction of certain conditions, in an aggregate principal amount up to $500 million. The Senior Credit Facilities also allow us to incur additional incremental senior secured term loans in unlimited amounts (beyond the $500 million) so long as, on a pro forma basis at the time of incurrence, our consolidated secured net leverage ratio (as defined in the credit agreement that governs the Senior Credit Facilities) does not exceed 2.50 to 1.00. However, no lender is under any obligation to make such incremental senior secured term loans to us.

We are permitted to prepay amounts outstanding under the Senior Credit Facilities at any time. If a prepayment of the Term Loan is made on or prior to May 29, 2015 as a result of certain refinancing or repricing transactions, we will be required to pay a fee equal to 1.00% of the principal amount of the obligations so refinanced or repriced. Subject to certain exceptions, we are required to prepay the Term Loan with the net cash proceeds of certain asset sales out of the ordinary course of business, casualty events and issuances of debt. We are required to make quarterly repayments of the Term Loan equal to 0.25% of the aggregate original principal amount, beginning on September 30, 2014. A principal payment of approximately $2 million was made on the Term Loan on September 30, 2014.

Borrowings under the Senior Credit Facilities bear interest at a rate equal to an applicable margin plus, at our option, either a base rate or eurocurrency rate (subject to a 1.00% floor) calculated in a customary manner. With respect to the Term Loan, the applicable margin will be 2.25% for base rate loans and 3.25% for eurocurrency rate loans. With respect to the Revolving Credit Facility, the applicable margin will be either 1.25% or 1.00% for base rate loans and 2.25% or 2.00% for eurocurrency rate loans, with the applicable rate determined based on our consolidated secured net leverage ratio (as defined in the credit agreement that governs the Senior Credit Facilities). We are required to pay a quarterly commitment fee under the Revolving Credit Facility equal to 0.375% of the actual daily unused portion of the commitments during the applicable quarter, as well as a letter of credit fee equal to the applicable margin for the Revolving Credit Facility payable on the aggregate face amount of letters of credit outstanding thereunder. In addition, we pay a fronting fee in respect of letters of credit issued under our Revolving Credit Facility at a rate of 0.125% per annum on the undrawn face amount of each issued letter of credit.

The indenture governing the Senior Notes and the Credit Agreement governing the Senior Credit Facilities limit, among other things, our ability and the ability of our subsidiaries to incur or guarantee additional indebtedness or sell preferred or mandatorily redeemable stock; to sell, transfer or otherwise dispose of certain assets; to allow liens to exist on our assets; to enter into sale/leaseback transactions; to consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets; or to enter into certain transactions with affiliates. These debt agreements may restrict our current and future operations, particularly our ability to incur debt that we may need to fund initiatives in response to changes in our business, the industries in which we operate, the economy and governmental regulations. With respect to the Revolving Credit Facility only, we are also required to maintain a consolidated secured net leverage ratio (as defined in the credit agreement that governs the Senior Credit Facilities) not to exceed 2.75 to 1.00, as tested at the end of each fiscal quarter.

In connection with the issuance of the Senior Notes and Senior Credit Facilities, we incurred deferred financing costs of approximately $13 million, which are being amortized to Interest expense, utilizing the effective interest method, over the terms of the Senior Notes and Senior Credit Facilities. The Term Loan was originally issued at a discount of approximately $13 million and the Senior Notes were originally issued at a discount of approximately $10 million. Debt discount is being amortized using the effective interest method over the terms of the Term Loan and the Senior Notes, respectively. For the three and nine months ended September 30, 2014 we incurred amortization expense on

20

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

deferred financing costs and discounts on indebtedness of approximately $1 million. As of September 30, 2014, the only utilization under the Revolving Credit Facility was letters of credit in the face amount of approximately $1 million.

On April 30, 2014, we acquired the Time Inc. UK publishing business (formerly the IPC publishing business) from a wholly-owned subsidiary of Time Warner (the "Time Inc. UK Purchase") in exchange for a promissory note. On May 1, 2014, the net proceeds from the Senior Notes were used to partially repay the promissory note. The balance of the promissory note, including principal and accrued interest, was paid with a portion of the Term Loan, and the remaining proceeds of the Term Loan were used to pay a special dividend to Time Warner in connection with the Spin-Off. The purchase price for the Time Inc. UK Purchase, together with the amount of the special dividend to Time Warner, was approximately $1.4 billion. The Time Inc. UK Purchase was not accounted for as a business combination because we were entities under common control at the time of the transaction.

Other Debt

At December 31, 2013, our long-term debt was $38 million consisting of a non-recourse promissory note issued in connection with the acquisition of the This Old House brand assets in 2001. In connection with the Spin-Off, Time Warner assumed our obligations under this promissory note.

12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In the ordinary course of business, we are defendants in or parties to various legal claims, actions and proceedings. These claims, actions and proceedings are at varying stages of investigation, arbitration or adjudication, and involve a variety of areas of law.

On March 10, 2009, Anderson News L.L.C. and Anderson Services L.L.C. (collectively, "Anderson News") filed an antitrust lawsuit in the U.S. District Court for the Southern District of New York against several magazine publishers, distributors and wholesalers, including Time Inc. and one of its subsidiaries, Time Inc. Retail (formerly Time Warner Retail Sales & Marketing Inc.) ("TIR"). Plaintiffs allege that defendants violated Section 1 of the Sherman Antitrust Act by engaging in an antitrust conspiracy against Anderson News, as well as other related state law claims. Specifically, plaintiffs allege that defendants conspired to reduce competition in the wholesale market for single-copy magazines by rejecting the magazine distribution surcharge proposed by Anderson News and another magazine wholesaler and refusing to distribute magazines to them. Plaintiffs are seeking (among other things) an unspecified award of treble monetary damages against defendants, jointly and severally. On August 2, 2010, the court granted defendants' motions to dismiss the complaint with prejudice and, on October 25, 2010, the court denied Anderson News' motion for reconsideration of that dismissal. On November 8, 2010, Anderson News appealed and, on April 3, 2012, the U.S. Court of Appeals for the Second Circuit vacated the district court's dismissal of the complaint and remanded the case to the district court. On January 7, 2013, the U.S. Supreme Court denied defendants' petition for writ of certiorari to review the judgment of the U.S. Court of Appeals for the Second Circuit vacating the district court's dismissal of the complaint. In February 2014, Time Inc. and several other defendants amended their answers to assert antitrust counterclaims against plaintiffs.

On November 14, 2011, TIR and several other magazine publishers and distributors filed a complaint in the U.S. Bankruptcy Court for the District of Delaware against Anderson Media Corporation, the parent company of Anderson News, and several Anderson News affiliates. Plaintiffs, acting on behalf of the Anderson News bankruptcy estate, seek to avoid and recover in excess of $70 million that they allege Anderson News transferred to the Anderson News-affiliated insider defendants in violation of the United States Bankruptcy Code and Delaware state law prior to the involuntary bankruptcy petition filed against Anderson News by certain of its creditors. On December 28, 2011, the defendants moved to dismiss the complaint. On June 5, 2012, the court denied defendants' motion. On November 6, 2013, the bankruptcy court lifted the automatic stay barring claims against the debtor, allowing Time Inc. and others to pursue an antitrust counterclaim against Anderson News in the antitrust action brought by Anderson News in the U.S. District Court for the Southern District of New York (described above).

On October 26, 2010, the Canadian Minister of National Revenue denied the claims by TIR for input tax credits in respect of goods and services tax that TIR had paid on magazines it imported into, and had displayed at retail locations in, Canada during the years 2006 to 2008, on the basis that TIR did not own those magazines, and issued Notices of

21

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Reassessment in the amount of approximately C$52 million. On January 21, 2011, TIR filed an objection to the Notices of Reassessment with the Chief of Appeals of the Canada Revenue Agency, arguing that TIR claimed input tax credits only in respect of goods and services tax it actually paid and, regardless of whether its payment of the goods and services tax was appropriate or in error, it is entitled to a rebate for such payments. On September 13, 2013, TIR received Notices of Reassessment in the amount of C$26.9 million relating to the disallowance of input tax credits claimed by TIR for goods and services tax that TIR had paid on magazines it imported into, and had displayed at retail locations in, Canada during the years 2009 to 2010. On October 22, 2013, TIR filed an objection to the Notices of Reassessment received on September 13, 2013 with the Chief of Appeals of the Canada Revenue Agency, asserting the same arguments made in the objection TIR filed on January 21, 2011. Including interest accrued on both reassessments, the total reassessment by the Canada Revenue Agency for the years 2006 to 2010 was C$85.7 million as of September 19, 2014.

We intend to vigorously defend against or prosecute the matters described above.

We establish an accrued liability for specific matters, such as a legal claim, when we determine both that a loss is probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters.

For the matters disclosed above, we do not believe that any reasonably possible losses in excess of accrued liabilities would be material to the Financial Statements as a whole. In view of the inherent difficulty of predicting the outcome of litigation, claims and other matters, we often cannot predict what the eventual outcome of a pending matter will be, or what the timing or results of the ultimate resolution of a matter will be.

Income Tax Uncertainties

Our operations are subject to tax in various domestic and international jurisdictions and are regularly audited by federal, state and foreign tax authorities. We believe we have appropriately accrued for the expected outcome of all pending tax matters and do not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse affect on our financial condition, future results of operations or liquidity. In connection with the Spin-Off, we entered into a Tax Matters Agreement with Time Warner that may require us to indemnify Time Warner for certain tax liabilities for periods prior to the Spin-Off.

Lease Obligations

In May 2014, we entered into agreements which will allow us to relocate our New York City headquarters in late 2015 from the Time and Life Building at 1271 Avenue of the Americas to Brookfield Place at 225 Liberty Street. The executed lease at 225 Liberty Street will provide us with six floors and 700,000 square feet of space. The lease at 225 Liberty Street commences on January 1, 2015 and extends through December 31, 2032, although cash payments for rent obligations under the lease are not expected to begin until January 1, 2018. We will recognize rental expense on a straight-line basis over the life of the lease resulting in a noncash rental charge of $30 million for 2015.

In June 2014, the lease obligation for six previously-vacated floors at our current headquarters at 1271 Avenue of the Americas was settled for $50 million. This cash expenditure was taken into account, and funded, in a series of transactions between us and our former parent, Time Warner, that resulted in our holding cash and cash equivalents of $136 million immediately following the completion of the Spin-Off on June 6, 2014. For the nine months ended September 30, 2014, we have incurred $29 million in connection with the settlement of the lease obligations for six floors at our current headquarters and exit costs previously accrued when we ceased use of those floors. Exit costs for the remaining rent obligations and ancillary costs for the remaining life of our existing lease at our current headquarters are expected to be $144 million in 2015.

In addition, the incremental base rent commitments for the new lease at 225 Liberty Street, excluding the impact of the $50 million settlement with our landlord at 1271 Avenue of the Americas, increased our base rental commitments by $527 million over the lease term through December 31, 2032. However, we expect the new lease to result in annual expense savings of approximately $50 million beginning in 2016.

As a result of the planned relocation of our corporate headquarters, we have accelerated the depreciation on our current tenant improvements at 1271 Avenue of the Americas. This accelerated depreciation charge impacted the three

22

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

and nine months ended September 30, 2014 by $5 million and $10 million, respectively, and is expected to impact the full year 2014 and 2015 results of operations by $16 million and $21 million, respectively.

13. RELATIONSHIP BETWEEN TIME INC. AND TIME WARNER AFTER THE SPIN-OFF

In June 2014, we entered into the Separation and Distribution Agreement, Transition Services Agreement (“TSA”), Tax Matters Agreement, Employee Matters Agreement and certain other agreements with Time Warner to effect the Spin-Off and to provide a framework for our relationship with Time Warner subsequent to the Spin-Off.

The Separation and Distribution Agreement between us and Time Warner contains the key provisions relating to the separation of our business from Time Warner and the distribution of our common stock to Time Warner stockholders. The Separation and Distribution Agreement identifies the assets that were transferred and liabilities that were assumed by us from Time Warner in the Spin-Off and describes how these transfers and assumptions occurred. In accordance with the Separation and Distribution Agreement, the Company’s aggregate cash and cash equivalents balance at the Distribution Date was approximately $136 million. As of September 30, 2014, we had cash and cash equivalents of $325 million.

Under the TSA, we and Time Warner provide to each other certain specified services on a transitional basis, including, among others, payroll tax, employee benefits administration, information systems, and other corporate services, as well as procurement and sourcing support. The charges for the transition services are generally intended to allow the providing company to fully recover the allocated direct costs of providing the services, plus all out-of-pocket costs and expenses, generally without profit. We anticipate that we will be in a position to complete the transition of most services on or before 24 months following the Distribution Date. Services under the TSA began after June 6, 2014. Costs associated with these services were not material in the three months ended September 30, 2014.

We entered into a Tax Matters Agreement with Time Warner that governs the parties' rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes, non-income taxes and related tax returns. Under the Tax Matters Agreement, we will indemnify Time Warner for (1) any taxes of Time Inc. and its subsidiaries for all periods after the Spin-Off and (2) any taxes of the Time Warner group for periods prior to the Spin-Off to the extent attributable to Time Inc. or its subsidiaries. The Tax Matters Agreement also imposes certain restrictions on us and our subsidiaries that are designed to preserve the tax-free nature of the Spin-Off, which will apply for a two-year period following the Spin-Off.

We entered into an Employee Matters Agreement that governs ours and Time Warner’s obligations with respect to employment, compensation and benefits matters for employees. The Employee Matters Agreement addresses the allocation and treatment of assets and liabilities relating to employees and compensation and benefit plans and programs in which our employees participated prior to the Spin-Off. The Employee Matters Agreement also governs the transfer of employees between Time Warner and us in connection with the Spin-Off, and also sets forth certain obligations for reimbursements and indemnities between Time Warner and us.

14. INCOME TAXES

At the end of each interim period, we estimate the annual effective income tax rate and apply that rate to our ordinary year-to-date earnings. The income tax expense or benefit related to significant or unusual items that are separately reported, or reported net of their respective tax impact, are individually computed and recognized in the period in which they occur. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the period in which such changes occur.

For the three months ended September 30, 2014 and 2013, our Income tax provision was $36 million and $46 million, respectively. For the nine months ended September 30, 2014 and 2013, our Income tax benefit was $7 million and our Income tax provision was $90 million, respectively. Our effective income tax rate for the three months ended September 30, 2014 and 2013 was 43% and 40%, respectively, and our effective income tax rate for the nine months ended September 30, 2014 and 2013 was 11% and 40%, respectively. The change in the effective income tax rate for the three and nine months ended September 30,2014 was primarily due to the tax impacts of the sale of GEX.

23

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

15. ADDITIONAL FINANCIAL INFORMATION

Additional financial information with respect to Accounts payable and accrued liabilities, Other noncurrent liabilities, Receivables allowance, Other expense, net and cash payments for taxes and interest is as follows (in millions):

September 30, 2014

December 31, 2013

Accounts payable and accrued liabilities:

Accounts payable

$

232

$

192

Accrued compensation

129

177

Distribution expenses

44

46

Rebates and allowances

33

28

Restructuring and severance

63

29

Accrued other taxes

36

19

Accrued interest (a)

20

—

Other current liabilities

39

43

Total accounts payable and accrued liabilities

$

596

$

534

September 30, 2014

December 31, 2013

Other noncurrent liabilities:

Noncurrent pension and postretirement liabilities

$

11

$

11

Restructuring and severance

31

29

Noncurrent tax reserves and interest

54

50

Noncurrent deferred compensation

34

31

Liabilities to Time Warner (b)

27

—

Other noncurrent liabilities

31

42

Total other noncurrent liabilities

$

188

$

163

September 30, 2014

December 31, 2013

Receivables allowance:

Allowance for doubtful accounts

$

75

$

70

Allowance for sales returns

196

211

Total receivables allowance

$

271

$

281

24

TIME INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Other (income) expense, net:

Investment (gains) losses, net

$

3

$

—

$

4

$

—

(Gain) loss on equity method investees

1

—

4

3

Other income (c)

(1

)

—

(9

)

—

Total other (income) expense, net

$

3

$

—

$

(1

)

$

3

Nine Months Ended September 30,

2014

2013

Cash Flows:

Cash payments made for income taxes

$

27

$

3

Income tax refunds received

1

1

Cash tax payments, net

$

26

$

2

Nine Months Ended September 30,

2014

2013

Cash interest payments:

Cash payments made for interest (a)

$

8

$

—

Interest income received

—

—

Cash interest payments, net

$

8

$

—

__________________________

(a)

Our Senior Notes bear interest at the rate of 5.75% per annum payable on April 15 and October 15 of each year beginning on October 15, 2014. We made an interest payment of approximately $19 million on our Senior Notes on October 15, 2014. The Senior Notes mature in April 2022. Our Term Loan bears interest at a variable rate payable quarterly. We made an interest payment on our Term Loan of approximately $8 million on August 29, 2014. We expect to make an interest payment of approximately $8 million on our Term Loan on November 28, 2014. Our Term Loan matures in April 2021. Commitment fees on our Revolving Credit Facility are not significant. See Note 11, Debt.

(b)

Liabilities to Time Warner relate to tax and stock compensation expense recharges in connection with the Tax Matters Agreement and Employee Matters Agreement. See Note 13, Relationship Between Time Inc. and Time Warner After the Spin-Off.

(c)

Other income consists primarily of reimbursements for Restructuring and severance costs from American Express in connection with the acquisition of Time Inc. Affluent Media Group (formerly known as American Express Publishing Corporation) in the fourth quarter of 2013.

25

TIME INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

This management's discussion and analysis, or MD&A, of our results of operations and financial condition is provided as a supplement to, and should be read in conjunction with, the unaudited consolidated and combined interim financial statements and notes thereto to help provide an understanding of our financial condition, changes in financial condition, results of our operations and cash flows. Unless the context otherwise requires, all references to "we," "us," "our," or the "Company" refer to Time Inc. together with its subsidiaries after giving effect to the Internal Reorganization (defined below) and the Spin-Off (defined below).

Our MD&A is organized as follows:

Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition and in anticipating future trends.

Consolidated and Combined Results of Operations. This section provides an analysis of our results of operations for the three and nine months ended September 30, 2014 compared to the three and nine months ended September 30, 2013. Our discussion is presented on a consolidated and combined basis. We report as one operating segment.

Liquidity and Capital Resources. This section provides a discussion of our financial condition as of September 30, 2014, as well as an analysis of our cash flows for the nine months ended September 30,2014 and 2013. The discussion of our financial condition and liquidity includes summaries of (i) our primary sources of liquidity and (ii) our contractual obligations that existed as of September 30, 2014 and December 31, 2013.

Caution Concerning Forward-Looking Statements. This section provides a description of the use of forward-looking information appearing in this report, including MD&A and the accompanying unaudited consolidated and combined financial statements.

The Spin-Off

On March 6, 2013, Time Warner Inc. ("Time Warner") announced plans for the complete legal and structural separation (the "Spin-Off") of Time Warner's publishing segment, which consisted principally of its magazine publishing business and related websites and operations managed by Time Inc. (the "TW Publishing Segment"), from Time Warner. To effect the Spin-Off, Time Warner undertook a series of internal transactions (the "Internal Reorganization") following which Time Inc., Time Warner’s wholly-owned subsidiary, held the TW Publishing Segment. The Spin-Off was completed by way of a pro rata dividend on June 6, 2014 of Time Inc. shares held by Time Warner to its stockholders as of May 23, 2014 (the "Record Date") based on a distribution ratio of one share of our common stock for every eight shares of Time Warner common stock held. Following the Spin-Off, Time Warner stockholders became the owners of 100% of the outstanding shares of common stock of Time Inc. and Time Inc. began operating as an independent, publicly-traded company with its common stock trading on the New York Stock Exchange ("NYSE") under the symbol "TIME". In connection with the Spin-Off, we and Time Warner entered into the Separation and Distribution Agreement dated June 4, 2014 (the "Separation and Distribution Agreement") and certain other related agreements that govern our relationship with Time Warner following the Spin-Off.

Our financial statements as of December 31, 2013 and for the three and nine months ended September 30, 2013 have been prepared on a combined basis and are presented as carve-out financial statements, as we were not a separate consolidated entity during these periods. These unaudited combined interim financial statements reflect the combined historical results of operations and cash flows of the TW Publishing Segment.

Prior to the Spin-Off our unaudited interim consolidated and combined Statements of Operations included allocations of expenses for administrative services that were provided on a centralized basis by Time Warner and not recorded at the business unit level, such as expenses for administrative services related to benefit plans, human resources, tax and treasury matters, among others. These expenses were allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of combined revenues, operating income, headcount or other measures. We believe the assumptions underlying the unaudited interim financial statements, including the assumptions regarding allocating expenses for administrative services from Time Warner, are reasonable. Nevertheless, the unaudited

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TIME INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

consolidated and combined interim financial statements may not include all of the actual expenses that would have been incurred by us and may not reflect our consolidated and combined results of operations and cash flows had we been a stand-alone company during the periods presented. Actual costs that would have been incurred if we had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. During the three months ended September 30, 2014 and 2013, we incurred nil and $3 million, respectively, of expenses related to administrative services performed by Time Warner. During the nine months ended September 30,2014 and 2013, we incurred $6 million and $13 million, respectively, of expenses related to such administrative services. Following the Spin-Off, we became responsible for the additional costs associated with being an independent, publicly-traded company, including costs related to corporate governance, investor and public relations, and public reporting. We estimate such costs to be approximately $30 million annually.

The unaudited consolidated and combined interim financial statements will be referred to as the "Financial Statements" herein. The unaudited consolidated and combined statements of operations will be referred to as the "Statements of Operations" herein. The unaudited consolidated and combined balance sheets will be referred to as the "Balance Sheets" herein.

The Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP").

For purposes of our Financial Statements for periods prior to the Spin-Off, income tax expense has been recorded as if we filed tax returns on a stand-alone basis separate from Time Warner. This separate return methodology applies the accounting guidance for income taxes to the financial statements as if we were a stand-alone enterprise for the periods prior to the Spin-Off. Therefore, cash tax payments for periods prior to the Spin-Off may not be reflective of our actual tax balances. Prior to the Spin-Off, our operating results were included in Time Warner's consolidated U.S. federal and state income tax returns. The calculation of our income taxes involves considerable judgment and the use of both estimates and allocations. Our financial information does not necessarily reflect what our results of operations and financial position would have been if we had operated as an entity separate from Time Warner during the periods presented herein.

BUSINESS OVERVIEW

Business Description

Time Inc. is one of the world's leading media companies reaching more than 130 million consumers each month across multiple platforms. Our influential brands include People, Sports Illustrated, InStyle, Time, Real Simple, Southern Living, Entertainment Weekly, Travel + Leisure, Food & Wine and Fortune, as well as more than 50 diverse titles at Time Inc. UK such as Decanter and Horse & Hound. Time Inc. is home to celebrated events and franchises including the Fortune 500, Time 100, People’s Sexiest Man Alive, Sports Illustrated’s Sportsman of the Year, the Food & Wine Classic in Aspen and the Essence Festival. As of September 30, 2014, we operated approximately 40 websites that collectively have over 100 million average monthly unique visitors around the world.1 We also operate integrated publishing businesses that provide content marketing, targeted local print and digital advertising programs, branded book publishing and marketing and support services, including magazine subscription sales services, retail distribution and marketing services and customer service and fulfillment services, to us and third-party clients, including other magazine publishers.

We generate revenues primarily from the sale of advertising in our magazines and on our websites, magazine subscriptions and newsstand sales. A significant majority of our revenues are generated in the United States. During the nine months ended September 30, 2014, we generated Revenues of $2.4 billion (flat as compared to the nine months ended September 30,2013), Operating loss of $35 million (a decrease from Operating income of $230 million for the nine months ended September 30,2013), Net loss of $58 million (a decrease from Net income of $135 million for the nine months ended September 30,2013), and Cash provided by operations of $170 million (down from $247 million in 2013).

__________________________

(1)

As reported by by comScore as of September 30, 2014.

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TIME INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We are experiencing declines in our print advertising and circulation revenues as a result of market conditions in the magazine publishing industry. Furthermore, because magazines are generally discretionary purchases for consumers, our circulation revenues are sensitive to general economic conditions, economic cycles and evolving consumer preferences. The shift in preference of some consumers from print media to digital media, as well as growing consumer engagement with digital media, such as online and mobile social networking, have introduced significant new competition. At the same time, the use of digital devices as distribution platforms for content has lowered the barriers to entry for launching digital products that compete with our businesses. We expect these trends to continue. Adverse changes in general market conditions may continue to adversely affect advertising and circulation revenues.

Costs of revenues include costs related to paper, printing, distribution, editorial and commissions. Selling, general and administrative expenses include promotional expenses, salaries, employee benefits, rent and other routine overhead.

Advertising volume, circulation and the price of paper are key variables whose fluctuations may have a material effect on our operating results and cash flow. We have to anticipate the level of advertising volume, circulation and paper prices in managing our businesses to attempt to maximize operating profit during expanding and contracting economic cycles. We continue to be exposed to risks associated with paper used for printing. Paper is a basic commodity and its price is sensitive to the balance of supply and demand and experiences cyclical changes. We compete for readership and advertising with local and national competitors and also compete with other media alternatives in their respective markets. Competition for circulation is based on the content of the media products provided, pricing and, from time to time, various promotions. Competition for advertising is based on the reach of the media products, advertising rates and advertisers' judgments as to the most effective use of their advertising budgets. Such judgments are based on factors such as cost, availability of alternative media, distribution and quality of readership demographics.

Business Strategy

We have pursued and will continue to pursue initiatives intended to help mitigate the declines in our print advertising and circulation revenues, including developing innovative ways to sell branded magazine content outside of traditional channels, such as through websites, tablets and other mobile devices; developing integrated advertising solutions to provide greater data insight and value to advertisers; developing a new cross-platform content management system; and improving our operating efficiency through management of our cost structure.

During the third quarter of 2013, we appointed a new Chief Executive Officer and Chief Financial Officer, who are developing new strategies and initiatives intended to enhance the scale of our digital platforms and associated revenues, extend brands and audiences into new adjacent opportunities, enhance the alignment of our creative functions with our business requirements, and stabilize operating income trends. These initiatives include:

•

Further investing in digital media, including mobile, video, more immersive tablet editions, contributor networks, and extensions of our brands across social media;

In August 2014, the sale of our Mexico-based operations, Grupo Editorial Expansión ("GEX"), was consummated for approximately $41 million, of which $2 million was received in the form of a promissory note payable to us in the fourth quarter of 2014. During the second quarter of 2014, we recorded an allocated Goodwill impairment charge of

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TIME INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

$26 million in connection with this impending sale. During the third quarter of 2014, we recorded a gain on sale of our GEX operations of $1 million. This gain is included within Selling, general, and administrative expenses on the accompanying Statements of Operations for the three and nine months ended September 30, 2014. Our GEX operations published 11 magazines in print in Mexico and operated 10 websites. GEX revenues for the three and nine months ended September 30, 2014 and 2013 represented 2% or less of our overall revenues during those periods. We have no significant continuing involvement in the operations of GEX following the consummation of the sale. The sale is not expected to have a significant impact on our continuing operations or financial results. However, we will continue our licensing arrangements with GEX which allow GEX to publish InStyle and Travel + Leisure magazines in Mexico. Revenues for these licensing arrangements are not significant to our overall results of operations.

Transactions and Other Items Affecting Comparability

As more fully described herein and in the related notes to the Financial Statements, the comparability of our results has been affected by transactions and certain other items in the three and nine months ended September 30, 2014 and 2013 as follows (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Restructuring and severance costs

$

(6

)

$

4

$

164

$

58

Asset impairments

—

—

26

—

Goodwill impairment

—

—

26

—

Gain on sale of assets

(2

)

—

(2

)

—

Other costs

2

1

7

1

Impact on Operating income

$

(6

)

$

5

$

221

$

59

Income tax impact of above items

3

—

(69

)

(18

)

Impact of items on Net income (loss)

applicable to Time Inc. shareholders

$

(3

)

$

5

$

152

$

41

In addition to the items affecting comparability described above, we incurred amortization expense of $19 million and $58 million for the three and nine months ended September 30, 2014, respectively, and $10 million and $30 million for the three and nine months ended September 30, 2013, respectively. The 2014 increase in expense primarily related to the classification of certain previously defined indefinite-lived intangibles to finite lives of 17 years effective January 1, 2014.

Additionally, as a result of the planned relocation of our corporate headquarters, we have accelerated the depreciation on our current tenant improvements at 1271 Avenue of the Americas. This accelerated depreciation charge impacted the three and nine months ended September 30, 2014 by $5 million and $10 million, respectively, and is expected to impact the full year 2014 and 2015 results of operations by $16 million and $21 million, respectively.

Restructuring and Severance Costs

In the first half of 2014, we initiated a restructuring plan that included streamlining our organizational structure to enhance operational flexibility, speed decision making, and spur the development of new cross-brand products and services. For the three and nine months ended September 30, 2014, we had a benefit of $6 million and a charge of $164 million, respectively, relating to such restructuring. For the three months ended September 30, 2014, the benefit represented changes in estimates of severance and an adjustment to exit costs. For the nine months ended September 30, 2014, Restructuring and severance charges primarily related to headcount reductions and real estate consolidations. For the three and nine months ended September 30, 2013, we incurred Restructuring and severance charges of $4 million and $58 million, respectively, primarily related to headcount reductions.

Asset Impairments

For the three and nine months ended September 30, 2014, we recorded Asset impairments of nil and $26 million, respectively, primarily related to a building classified during the first quarter of 2014 as an asset held for sale as well

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TIME INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

as our exit of certain leased properties. There were no asset impairment charges during the three and nine months ended September 30, 2013.

Goodwill Impairment

For the three and nine months ended September 30, 2014, we recorded an allocated Goodwill impairment charge of nil and $26 million, respectively, in connection with the sale of our Mexico-based GEX operations. We did not have a Goodwill impairment charge during the three and nine months ended September 30, 2013.

Gain on Sale of Assets

During the three and nine months ended September 30, 2014, we generated a gain from the sale of our Mexico-based GEX operations of approximately $1 million and from the sale of real property of approximately $1 million. Such gains are reflected within Selling, general and administrative expenses on the accompanying Statements of Operations.

Other Costs

Other costs relate to costs associated with mergers, acquisitions, investments or dispositions and any contingent consideration related to such transactions, to the extent such costs are expensed. For the three and nine months ended September 30, 2014, Other costs related primarily to costs associated with the Spin-Off and transaction costs related to acquisitions and dispositions. For the three and nine months ended September 30, 2014, Other costs related primarily to transaction costs related to acquisitions and dispositions. These costs were recorded within Selling, general and administrative expenses on the accompanying Statements of Operations.

CONSOLIDATED AND COMBINED RESULTS OF OPERATIONS

Financial Results

The following discussion provides an analysis of our results of operations and should be read in conjunction with the accompanying unaudited consolidated and combined interim statements of operations.

Impacting our results of operations for the three and nine months ended September 30, 2014 are the acquisition of Time Inc. Affluent Media Group ("AMG") (formerly known as American Express Publishing Corporation) during the fourth quarter of 2013 (the "AMG Acquisition"), our sale of our Mexico-based GEX operations during the third quarter of 2014 (See Note 2, Dispositions, to the accompanying Financial Statements), and the acquisition of Cozi Inc. and termination of the CNNMoney.com partnership with Turner Broadcasting System, Inc. ("Turner") during the second quarter of 2014 (collectively, the "Corporate Transactions").

Prior to the Spin-Off, we engaged in a partnership with Turner, a subsidiary of Time Warner, to jointly operate CNNMoney.com, a financial news and information website. The primary source of revenue for this arrangement was advertising revenue earned by the website. In accounting for this arrangement, we recorded Advertising revenues for the advertisements sold on the website and recorded a charge in Selling, general and administrative expenses to reflect Turner's share of the net profits. For the three months ended September 30, 2014 and 2013, revenues recognized related to this arrangement were nil and $10 million, respectively. For the nine months ended September 30, 2014 and 2013, revenues recognized related to this arrangement were $17 million and $35 million, respectively. Amounts recorded in Selling, general and administrative expenses related to Turner's share of the net profits were nil and $1 million for the three months ended September 30, 2014 and 2013, respectively, and $2 million and $6 million for the nine months ended September 30, 2014 and 2013, respectively. In connection with the Spin-Off, this arrangement was terminated effective June 1, 2014, which adversely affected our Digital advertising revenues for the three and nine months ended September 30, 2014 versus the prior year comparable periods.

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TIME INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Revenues

The following table presents our Revenues, by type (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

% Change

2014

2013

% Change

Revenues:

Advertising

Print and other advertising

$

363

$

368

(1

%)

$

1,068

$

1,072

—

%

Digital advertising

65

62

5

%

211

195

8

%

Total advertising revenues

428

430

—

%

1,279

1,267

1

%

Circulation

279

285

(2

%)

807

816

(1

%)

Other

114

103

11

%

300

305

(2

%)

Total revenues

$

821

$

818

—

%

$

2,386

$

2,388

—

%

The following table presents our Revenues, by type, as a percentage of total revenues:

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Revenues:

Advertising

52

%

53

%

54

%

53

%

Circulation

34

%

35

%

34

%

34

%

Other

14

%

12

%

12

%

13

%

Total revenues

100

%

100

%

100

%

100

%

Revenues for the three months ended September 30, 2014 increased $3 million from the prior year comparable period to $821 million. Excluding the impact of the Corporate Transactions, Revenues for the three months ended September 30, 2014 would have declined $44 million or 6% versus the prior year comparable period. Revenues for the nine months ended September 30, 2014 declined $2 million from the prior year comparable period to $2,386 million. Excluding the impact of the Corporate Transactions, Revenues for the nine months ended September 30, 2014 would have declined $136 million or 6% versus the prior year comparable period. The decline in Revenues for the three and nine months ended September 30, 2014 was primarily attributable to market conditions in the magazine publishing industry which continues to experience reduced advertising expenditure as a result of shifting advertising spending from print to other media resulting in fewer pages sold, as well as lower consumer demand for print subscriptions and newsstand products.

Advertising Revenues

Our Advertising revenues are principally derived from print and digital advertising. For the three months ended September 30, 2014, Advertising revenues of $428 million were flat versus the prior year comparable period. Excluding the impact of the Corporate Transactions, Advertising revenues for the three months ended September 30, 2014 would have declined $22 million or 5% versus the prior year comparable period. For the nine months ended September 30, 2014, Advertising revenues increased $12 million or 1% versus the prior year comparable period. Excluding the impact of the Corporate Transactions, Advertising revenues for the nine months ended September 30, 2014 would have decreased by $63 million or 5% versus the prior year comparable period.

Print and other advertising revenues decreased $5 million or 1% during the three months ended September 30, 2014 versus the prior year comparable period. Excluding the impact of the Corporate Transactions, Print and other advertising revenues would have declined $31 million or 9% during the three months ended September 30, 2014 versus the prior year comparable period. For the nine months ended September 30, 2014, Print and other advertising revenues decreased $4 million versus the prior year comparable period. Excluding the impact of the Corporate Transactions, Print and other advertising revenues would have declined $81 million or 8% during the nine months ended September 30, 2014 versus the prior year comparable period. The declines were driven primarily by fewer advertising pages sold.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The decline for the three months ended September 30, 2014 versus the prior year comparable period also reflected a $4 million reduction due to calendar timing of certain weeklies. Demand for print advertising at our entertainment, news and sports titles weakened in the latter part of the third quarter of 2014, with booking trends remaining weak in the fourth quarter.

For the three months ended September 30, 2014, Digital advertising revenues increased by $3 million or 5% versus the prior year comparable period. Excluding the impact of the Corporate Transactions, Digital advertising revenues for the three months ended September 30, 2014 would have increased $9 million or 19% versus the prior year comparable period. During the nine months ended September 30, 2014, Digital advertising revenues increased $16 million or 8% versus the prior year comparable period. Excluding the impact of the Corporate Transactions, Digital advertising revenues would have increased $18 million or 12% during the nine months ended September 30, 2014.

Circulation Revenues

The components of Circulation revenues are as follows (in millions):

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

% Change

2014

2013

% Change

Circulation revenues:

Subscription

$

174

$

176

(1

%)

$

525

$

516

2

%

Newsstand

98

105

(7

%)

267

288

(7

%)

Other circulation

7

4

75

%

15

12

25

%

Total circulation revenues

$

279

$

285

(2

%)

$

807

$

816

(1

%)

For the three months ended September 30, 2014, Circulation revenues decreased $6 million versus the prior year comparable period due to a decline of $2 million in Subscription revenues and a decline of $7 million in Newsstand revenues, partially offset by an increase of $3 million in Other circulation revenues. Excluding the impact of the Corporate Transactions, Circulation revenues would have declined $15 million or 5% during the three months ended September 30, 2014 versus the prior year comparable period, of which Subscription revenues declined $11 million or 6% and Newsstand revenues declined $7 million or 7%. The wholesaler transition impacted Newsstand revenues by approximately $2 million in the third quarter of 2014. See "Liquidity and Capital Resources – Contractual and Other Obligations – Discontinued Wholesaler." Excluding the impact of the wholesaler transition, Newsstand revenues would have declined $5 million or 5%. The decrease was primarily due to lower demand for print subscriptions, as well as the calendar timing of certain weeklies which adversely impacted Newsstand revenues by approximately $3 million, partially offset by an increase to Newsstand revenues of approximately $4 million from the March 2014 People magazine price increase and a benefit of approximately $4 million from the weaker U.S. dollar relative to the British pound.

For the nine months ended September 30, 2014, Circulation revenues decreased $9 million versus the prior year comparable period due to a decrease of $21 million in Newsstand revenues, partially offset by an increase in Subscription revenues of $9 million and Other circulation revenues of $3 million. Excluding the impact of the Corporate Transactions, Subscription revenues would have declined $23 million or 4% and Newsstand revenues would have declined $20 million or 7% during the nine months ended September 30, 2014 versus the prior year comparable period. The decrease in Subscription revenues reflected the continuing trend of reduced volumes while the decrease in Newsstand revenues was primarily due to the wholesaler transition. The wholesaler transition adversely impacted Newsstand revenues by approximately $14 million during the nine months ended September 30, 2014.

Other Revenues

Other revenues, which includes marketing and support services provided to third parties, branded book publishing, events and licensing, increased $11 million and decreased $5 million for the three and nine months ended September 30, 2014, respectively, versus the prior year comparable period. Excluding the impact of the Corporate Transactions, Other revenues would have declined $7 million or 7% during the three months ended September 30, 2014 versus the prior year comparable period. The decline for the three months ended September 30, 2014 was primarily the result of lower revenues at our subscription marketing subsidiary, partially offset by growth in revenues from ticket

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TIME INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

sales at the Essence Festival. Excluding the impact of the Corporate Transactions, Other revenues would have declined $33 million or 11% during the nine months ended September 30, 2014 versus the prior year comparable period. The decline was primarily attributable to the wholesaler transition which impacted our bookazine business during the second quarter of 2014 and the absence of the Fortune Global Forum, which was held in 2013 and occurs every other year.